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[Quick Facts]

1. Fed's Bostic opposes tightening too much but isn't for easing policy any time soon.

2. Sayuri Shirai says it's too early for the BOJ to exit easy monetary policy.

3. Eurozone inflation stops slowing.

4. Schnabel believes underlying price pressures remain stubbornly high.

5. ECB Holzmann sees cases for a September rate hike.

[News Details]

Fed's Bostic opposes tightening too much but isn't for easing policy any time soon

Given the lagging nature of rental prices in the calculation, underlying inflation may well be close to our target already, U.S. Atlanta Fed President Raphael Bostic (with no voting right) said in a speech on Thursday.

The job market is possibly cooling faster than official data suggest.

"We should be cautious and patient and let the restrictive policy continue to influence the economy, lest we risk tightening too much and inflicting unnecessary economic pain," said Bostic.

Bostic isn't for easing policy any time soon. The Fed must stay "resolute" on keeping policy tight until it is clear that inflation is on track to reaching the Fed's 2% goal over a reasonable time frame, he said. He believed that policy was already restrictive enough to get us there.

But he supported taking necessary measures if inflation or inflation expectations suddenly reverse and start climbing.

Sayuri Shirai says it's too early for the BOJ to exit easy monetary policy

It's still too early for the Bank of Japan (BOJ) to tighten monetary policy, former policy board member Sayuri Shirai said, expressing surprise at the central bank's move in July to allow long-term rates to rise more. Markets saw the move as another step in the central bank's exit from its massive stimulus program. Sayuri Shirai said the recent rise in inflation had been driven mainly by higher import costs rather than rising wages, supporting comments made by dovish board member Toyoaki Nakamura. Shirai expected another fine-tuning of the yield curve control (YCC) tolerance band to plus or minus 1%, from plus or minus 0.5% currently, even before the BOJ begins an exit from its easy monetary policy. Shirai said there was less pressure on the government to intervene to stop the Japanese currency from depreciating this time due to a combination of lower commodity prices and higher equity markets.

Eurozone inflation stops slowing

The annual Eurozone Harmonised Index of Consumer Prices (HICP) rose 5.3% in August, at the same pace as seen in July, driven by higher food prices and a slower decline in energy prices, according to data released by Eurostat. Its core CPI slowed as expected at the 6.2% rate.

The fact that inflation stopped slowing puts officials who are weighing whether inflationary pressures are too stubborn to risk pausing rate hikes in a dilemma.

Traders, however, chose to focus their attention on the slowdown in core inflation and continued to cut bets on further ECB rate hikes, despite the rising inflation data released by Germany and France, the euro area's largest economies.

The likelihood of an ECB rate hike in September is expected to be 30%. At the same time, the likelihood of a rate hike in October has been revised up from 20% to 25% (and the probability of a rate hike in December has also risen slightly). This reflects the market's view that while the European Central Bank may pause its rate hike in September, it may also restart a hike in October, and a pause does not signal the end of the tightening cycle. Now, the market sees a 65%-70% probability of the ECB's terminal rate reaching 4%, but it doesn't know the exact time.

Schnabel believes underlying price pressures remain stubbornly high

The outlook for economic growth has deteriorated, but prices remain high, said ECB Executive Board member Isabel Schnabel on Thursday. The euro area's growth outlook is grimmer than officials predicted in June, while underlying inflation remains "stubbornly high."

We cannot predict where interest rates will peak or how long they will remain at restrictive levels. Nor can we commit to future actions.

A sufficiently tight monetary policy is critical to bringing inflation back to the 2% target in a timely manner. Should we judge that the policy stance is inconsistent with a timely return of inflation to our 2% target, a further increase in interest rates will be justified.

Schnabel is one of the hawkish officials in the current tightening cycle. She insisted that restrictive interest rates would be needed to curb consumer prices, while recognizing that the ECB's "windshield" has become clearly clouded.

ECB Holzmann sees cases for a September rate hike

Inflation is still at a high level, said ECB Governing Council member Robert Holzmann in a speech on Thursday. The latest inflation data show that inflation stopped slowing, which suggests that prices are continuing to rise, driven by an unusually tight labor market.

I haven't seen cases for a pause in rate hikes as I don't have all the data, but I don't rule it out, said Holzmann. We have not yet reached the maximum level of interest rates and we may raise rates one or two more times.

If interest rates are above 4% this year and inflation falls, then we can cut rates in 2024. But if not, we will have to wait until 2025.

[Focus of the Day]

UTC+8 18:00 Atlanta Fed President Bostic delivers a speech on U.S. monetary policy

UTC+8 20:30 U.S. Non-Farm Payrolls (Aug)

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UTC+8 21:45 Cleveland Fed President Mester speaks on inflation